Small Caps | Sep 01 2011
– Timeline slips for REVA's bioresorbable stent trial
– Any associated share price weakness a buying opportunity says Bell Potter
– Broker retains a Spec Buy rating on REVA
By Chris Shaw
When listing last year, biotech play REVA Medical ((RVA) raised $85 million but as Bell Potter notes there has been little in the way of news from the company since that time apart from a slipping of the timeline for a pilot trial of the company's bioresorbable stents, called ReZolve.
A stent is an artificial tube inserted to prevent or counteract a disease-induced, localised flow constriction. Most common use is in coronary arteries, Bell Potter noting the stent market at present is worth US$4-$5 billion annually and is currently dominated by the likes of Boston Scientific and Medtronic.
Both companies have given financial support to REVA as it has developed its stent technology, which Bell Potter notes keeps the door open to a possible acquisition if early clinical trials prove to be successful.
What also makes REVA attractive to the likes of Boston Scientific and Medtronic is both companies need a bioresorbable stent alternative to compete more effectively against Abbott Laboratories in that part of the stent market.
Boston Scientific appears well placed in this regard, having an option over worldwide distribution in place with REVA.
An initial product validation clinical study of 50 subjects should commence later this year, while enrolment of a further 350 patients in Europe and Australia will be undertaken in 2012. While the timeline for REVA's trial has slipped, Bell Potter notes management still expects to complete its pivotal trials for CE Marking late in 2013.
In Bell Potter's view, any share price slippage as a result of a fall in investor sentiment due to slippage in the trial timeline represents a good buying opportunity, as the potential upside from ReZolve remains significant.
This is because the product has been shown to work though a three year pilot clinical study and because, as Bell Potter notes, the ReZolve stent could ultimately eliminate the use of anti-clotting drugs associated with current metal stents.
As well, ReZolve has the potential to transform the stent market given it has been engineered to dissolve at the correct pace to allow for successful artery remodelling. The other factor in support of ReZolve according to bell Potter is the stent can be deployed without damage to the stent itself.
To value REVA Bell Potter has factored in an additional equity raising of $85 million to partly fund the FDA trial of ReZolve, the result being a base case valuation of $1.66 and an optimistic case of $2.35. The valuation process assumes REVA brings ReZolve to market on its own and factors in sales in the US and Europe only.
Bell Potter's price target for REVA has been set at $2.10, roughly the mid-point of its two valuations. This sees Bell Potter retain a Speculative Buy rating on the stock. Much of the market is yet to pick up on the REVA Medical story, as the FNArena database shows no other coverage on the stock.
Shares in REVA today are stronger and as at 1.00pm the stock was up 9c or 13% at $0.78. This compares to a trading range over the past year of $0.57 to $1.38.
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